What Is a Deed of Trust and How Does It Work?

A deed of trust is a key part of many real estate transactions. It’s an agreement between you, your lender, and a neutral third party that helps ensure the loan is secured and the property transfer is handled smoothly.

But while it serves a similar purpose to a mortgage, it’s not the same—a distinction that often causes confusion.

In this article (Skip to...)

• What is a deed of trust?
• How does a deed of trust work?
• Deed of trust vs mortgage
• How to find your deed of trust

What is a deed of trust?

When closing on a loan to buy a property, you’ll sign a lot of paperwork with your loan agreement. In some states, you’ll also sign a deed of trust.

This document connects the property to the loan and gives the lender the right to take the property (or foreclose) if you don’t repay the loan.

A deed of trust also includes pertinent details about the loan, such as the borrowing amount, the interest rate, the repayment schedule, and the length of the loan.

A deed of trust isn’t used in every state—some states use mortgages—but it’s typically used in places like California and Texas. In which case, a third-party trustee will step in to handle matters if a borrower fails to repay the loan.

How does a deed of trust work?

A deed of trust involves three main parties: the borrower (trustor), the lender (beneficiary), and a neutral third party (trustee). Here’s what each party does:

•The borrower (Trustor): This is the person who takes out the loan and promises to repay it under the agreed terms.

•The lender (Beneficiary): The lender provides the funds for the loan and hold a financial interest in the property until the borrower repays the loan.

•The trustee: The trustee is a neutral third party who holds legal title to the property until the loan is paid off. If the borrower defaults on the loan, they have the right to begin the foreclosure process.

Deed of trust vs mortgage

A deed of trust and a mortgage both serve the same purpose, which is to secure a loan for a property. Even so, they differ in how they function.

The main difference between the two lies in the number of parties involved and the process of foreclosure. Whereas a deed of trust involves three parties: the borrower, the lender, and a third-party trustee, a mortgage involves only the borrower and the lender. The borrower holds the legal title, but the lender has a lien on the property.

Another difference involves the handling of foreclosures, which can happen when a borrower defaults and the lender sells the property to recover the money owed.

With a deed of trust, the trustee can start a foreclosure without involving the court system. This is known as a non-judicial foreclosure.

On the other hand, when a mortgage secures the loan, it’s known as a judicial foreclosure and the lender must go through the court to start proceedings. Since this process involves the court system, it tends to be slower.

Foreclosures with a deed of trust can take three to six months on average, whereas foreclosures with a mortgage might take six months to over a year. Therefore, if you’re in a state that uses a deed of trust, you could be removed from your home sooner.

Keep in mind that whether you have a deed of trust or a mortgage depends on where you live. For example, states like California, Virginia, Georgia, North Carolina, and Texas typically use a deed of trust. Meanwhile, states like New York, Michigan, Illinois, Ohio, and Florida use a mortgage.

How to find a deed of trust

If you’re looking for a deed of trust, the good news is that these are public documents. They’re typically recorded with the county clerk or recorder’s office in the county where the property is located.

You can begin your search by checking the county’s official website, as some now offer online access to public records. These records might retrieve deeds of trusts, which might be searchable by property address or owner name.

If you’re not comfortable using online databases, you can also visit the county clerk’s office in person. They can assist with finding the document and provide a copy, if needed.

Additionally, your title company might have a copy of your deed of trust, more so if they were involved in the closing process when you bought the home.

Title companies make sure that a property’s title is free and clear of any legal issues before a sale, and they typically handle the recording of documents.

Bottom line

A deed of trust is an important document that helps secure your home loan and protects both you and the lender. Understanding how it works can help you feel more confident during the home buying process, as it outlines the responsibilities of both parties.

If you have questions about the deed of trust including how to find yours, speak with your lender or title company.